On a final review set, the question is presented in this context. Focus on what changes once the scenario is viewed through state law. An agent sold an unregistered security to a client. In a civil action by the client, the agent claims he did not know the security was unregistered. This defense is:

AValid — the agent is not liable if he was unaware of the registration status
BValid only if the agent can prove the broker-dealer told him the security was registered
CInvalid — liability for selling unregistered securities is absolute regardless of the seller's knowledge✓ Correct answer
DValid only if the agent has fewer than 2 years of experience in the industry

Explanation

Why C — Invalid — liability for selling unregistered securities is absolute regardless of the seller's knowledge

Under USA Section 410(a), liability for selling unregistered, non-exempt securities is a strict liability provision. The seller's lack of knowledge that the security was unregistered is not a defense. However, Section 410(b) does provide a defense of not knowing for fraud-based claims. The extra setup is just noise; the controlling state-law rule stays the same.

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